Rating agency Moody’s has changed from negative to stable the outlook on the Ba2 corporate family rating (CFR) and the Ba2-PD probability of default rating (PDR) of Russian shipping company Sovcomflot PAO (SCF).
The stabilisation of the outlook on SCF’s Ba2 CFR follows Moody’s decision to change the outlook on Russia’s Ba1 government bond rating to stable from negative on 4 December 2015.
At the same time, Moody’s upgraded to Ba3 from B1 SCF’s senior unsecured issuer rating and the senior unsecured rating of the $800 million Eurobond issued by SCF Capital Limited on the back of improvements to the company’s standalone credit quality and subsequent strengthening of its position within the current Ba2 rating category. The outlook on these ratings is stable.
Moody’s said that the outlook change has been attributed to the stabilisation of the outlook on the sovereign rating of the Russian Federation, the company’s support provider, as well as the company’s strengthened standalone positioning.
As part of the action, Moody’s has raised SCF’s BCA to b1 from b2, reflecting material improvement in the company’s operating environment, its financial performance and financial metrics.
SCF’s b1 BCA is supported by favourable dynamics in the crude oil and oil products marine shipping segment, the company’s market position as the world’s number two owner of tankers in terms of the number of vessels, and the company’s young fleet with an average age of eight years; material improvements in time charter equivalent (TCE) revenue and margins thanks to higher rates and lower bunker fuel costs.
This is also supported by good cash flow visibility as two-thirds of revenue originate from long-term charters as opposed to the spot market; relatively moderate fleet maintenance costs; and revenue growth potential from fleet additions and growing diversification into the liquefied natural gas (LNG) shipping and offshore services.
The company’s revenue in the last 12 months ended 30 September 2015 increased by 17% and Moody’s adjusted EBITDA and cash flow from operations (CFO) by 80% compared with 2013. The company’s leverage measured by adjusted debt/EBIDA decreased to 4.0x and retained cash flow/debt improved to 19.3% as of end-September 2015 from 6.9x and 12% as of end-2013, respectively.
Given that tanker fleet additions slowed down and should remain moderate in 2016-17, and market demand in the tanker segment should remain steady in the next 12 months driven by the low oil prices and increased refining activity, Moody’s expects the metrics to further improve based on full-year 2015 results and remain sustainable in 2016-17.